Sam’ Business - Sole Proprietor with one employee. Income Statement Net Income 2

Question

Sam’ Business - Sole Proprietor with one employee.
Income Statement

Net Income 2013-$14,375; 2014-$29,250; 2015-$32,250; 2016-$40,000
Balance Sheet
Assets 2013-$5,725; 2014-$4,925; 2015-$9,000; $10,000
Liabilities
Total Liabilities 2013-$4,625; 2014-$7,575; $2015-$8,475; 2016-$9,100
Equity
Total Equity $1,100; -$2,650; $525; $900
Total Liabilities and STE $5,725; $4,925: $9,000; $10,000
Question: 1. Calculate two ratios for the company; interpret what the ratio means, (i.e., debt to equity, liquidity ratio).
2. What happens to the net income Sam is generating?


Sam’ Business - Sole Proprietor with one employee.
Income Statement

Net Income 2013-$14,375; 2014-$29,250; 2015-$32,250; 2016-$40,000
Balance Sheet
Assets 2013-$5,725; 2014-$4,925; 2015-$9,000; $10,000
Liabilities
Total Liabilities 2013-$4,625; 2014-$7,575; $2015-$8,475; 2016-$9,100
Equity
Total Equity $1,100; -$2,650; $525; $900
Total Liabilities and STE $5,725; $4,925: $9,000; $10,000
Question: 1. Calculate two ratios for the company; interpret what the ratio means, (i.e., debt to equity, liquidity ratio).
2. What happens to the net income Sam is generating?



Income Statement

Net Income 2013-$14,375; 2014-$29,250; 2015-$32,250; 2016-$40,000
Balance Sheet
Assets 2013-$5,725; 2014-$4,925; 2015-$9,000; $10,000
Liabilities
Total Liabilities 2013-$4,625; 2014-$7,575; $2015-$8,475; 2016-$9,100
Equity
Total Equity $1,100; -$2,650; $525; $900
Total Liabilities and STE $5,725; $4,925: $9,000; $10,000
Question: 1. Calculate two ratios for the company; interpret what the ratio means, (i.e., debt to equity, liquidity ratio).
2. What happens to the net income Sam is generating?



Net Income 2013-$14,375; 2014-$29,250; 2015-$32,250; 2016-$40,000
Balance Sheet
Assets 2013-$5,725; 2014-$4,925; 2015-$9,000; $10,000
Liabilities
Total Liabilities 2013-$4,625; 2014-$7,575; $2015-$8,475; 2016-$9,100
Equity
Total Equity $1,100; -$2,650; $525; $900
Total Liabilities and STE $5,725; $4,925: $9,000; $10,000
Question: 1. Calculate two ratios for the company; interpret what the ratio means, (i.e., debt to equity, liquidity ratio).
2. What happens to the net income Sam is generating?

Explanation / Answer

1. debt to equity ratio:- total liabilities÷ total shareholder's equity

= 29775÷ 5175

= 5.7536 ( or 575% approx)

liquidity ratio:- The most basic liquidity ratio or metric is the calculation of working capital. Working capital is the difference between current assets and current liabilities. If a business has a positive working capital, this indicates it has more current assets than current liabilities and in the event of an emergency, the business can pay all of its short-term debts. A negative working capital indicates that a company is illiquid

2. net income is same as net profit. In business, net income (total comprehensive income, net earnings, net profit, informally, bottom line) is an entity's income minus cost of goods sold, expenses and taxes for an accounting period.[1] It is computed as the residual of all revenues and gains over all expenses and losses for the period,[2] and has also been defined as the net increase in shareholders' equity that results from a company's operations

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